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Measuring Social Security’s Financial Problems

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Author Info
Jagadeesh Gokhale (The Wharton School, University of Pennsylvania and NBER)
Kent Smetters (The Wharton School, University of Pennsylvania)

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Abstract

The U.S. Social Security system has helped keep many retirees out of poverty. However, according to the Social Security and Medicare Trustees, Social Security faces a future financial shortfall of $10.4 trillion in present value. This enormous imbalance has received little attention in public debates about Social Security. Instead, the media and policymakers continue to focus on the program’s trust fund and several other ad-hoc measures that create a misleading impression of the size of Social Security’s financial problem. Although the Social Security Trust Fund is not projected to be exhausted until 2042, Social Security’s $10.4 trillion present value imbalance is accruing interest and will grow by $600 billion during 2004 alone. The current cash-flow federal budget, however, is biased against reforms that would improve Social Security’s finances. As shown herein, a new federal accounting system would remove this bias.

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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp093.

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Length: 26 pages
Date of creation: Jan 2005
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Handle: RePEc:mrr:papers:wp093

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Dec. [Downloadable!]
  2. Peter Diamond, 2004. "Social Security," American Economic Review, American Economic Association, vol. 94(1), pages 1-24, March. [Downloadable!] (restricted)
  3. Sita Nataraj & John B. Shoven, 2004. "Has the Unified Budget Undermined the Federal Government Trust Funds?," NBER Working Papers 10953, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Kent Smetters, 2004. "Is the Social Security Trust Fund a Store of Value?," American Economic Review, American Economic Association, vol. 94(2), pages 176-181, May. [Downloadable!] (restricted)
  5. Gary V. Engelhardt & Jonathan Gruber, 2004. "Social Security and the Evolution of Elderly Poverty," NBER Working Papers 10466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Laurence J. Kotlikoff, 2007. "Is the U.S. Bankrupt?," Boston University - Department of Economics - Working Papers Series WP2007-015, Boston University - Department of Economics. [Downloadable!]
  2. Francisco J. Gomes & Laurence J. Kotlikoff & Luis M. Viceira, 2007. "The Excess Burden of Government Indecision," NBER Working Papers 12859, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Jianjun Miao & Neng Wang, 2007. "Risk, Uncertainty, and Option Exercise," Boston University - Department of Economics - Working Papers Series WP2007-016, Boston University - Department of Economics. [Downloadable!]
    Other versions:
  4. Erling Holmøy, 2007. "Fiscal sustainability: Must the problem be diminished before we can see it?," Discussion Papers 499, Research Department of Statistics Norway. [Downloadable!]
  5. Andrew G. Biggs & Jeffrey R. Brown & Glenn Springstead, 2005. "Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing," NBER Working Papers 11406, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Anjan Thakor, 2006. "Commentary on "Is the United States bankrupt? "," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 251-258. [Downloadable!]
  7. Laurence J. Kotlikoff, 2006. "Is the United States bankrupt?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 235-250. [Downloadable!]
  8. William R. Emmons & Anthony Pennington-Cross, 2006. "Editor's introduction," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 221-234. [Downloadable!]
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